Level 1 Flashcards
To know all necessary objectives of APC Accounting Principles Level 1
What is a Creditor?
A creditor is a person who lends money
What is a debtor?
A debtor is a person who owes money
What is capital in relation to companies and the stakeholders?
Capital is wealth in the form of money or other assets for the purpose of investment
What are company reserves?
Reserves – or retained earnings – are portion of business’s profits which have been set aside to strengthen the business’s financial position. They can be used to purchase fixed assets, repay debts, fund expansions, bonuses and dividend repayments.
Can you list some things you would expect to see in D+S company accounts?
Annual company accounts are a summary of the organisation’s financial transactions, which are usually in a set 12-month period. There are three key financial statements within your company accounts. These consist of the Balance Sheet, the Profit and Loss Statement and the Cash Flow Statement
What is the purpose of a cash flow statement?
Shows what money is coming in and coming out. This shows the liquidity.
Can you give me an example of a short-term liability in Doig + smith?
Accounts payable, taxes payable, unearned revenues, current purchases, vendor invoices and current portions of long-term debts
What is turnover?
Company turnover is the value of sales you make in a set period. It is generally measured over a year’s period, whether that’s the calendar year, tax year or fiscal year
What’s the difference between a tangible asset and an intangible asset?
Tangible assets are physical in nature that can be either long-term or short-term assets. Intangible assets are long-term assets that are not physical, but rather, intellectual property. Both tangible and intangible assets are recorded on the balance sheet
Can you list 3 types of taxes?
Corporate tax, VAT, and Income Tax
Tell me what you understand of auditing
An audit is the examination of the financial report of an organisation - as presented in the annual report - by someone independent of that organisation. The financial report includes a balance sheet, an income statement, a statement of changes in equity, a cash flow statement, and notes comprising a summary of significant accounting policies and other explanatory notes.
What is the purpose of an audit?
The purpose of an audit is to form a view on whether the information presented in the financial report, taken as a whole, reflects the financial position of the organisation at a given date, for example:
- Are details of what is owned and what the organisation owes properly recorded in the balance sheet?
- Are profits or losses properly assessed?
When examining the financial report, auditors must follow auditing standards which are set by a government body. Once auditors have completed their work, they write an audit report, explaining what they have done and giving an opinion drawn from their work. Generally, all listed companies and limited liability companies are subject to an audit each year. Other organisations may require or request an audit depending on their structure and ownership.
Who performs financial audits?
Certified public accountant (CPA) Auditors conduct financial audits and check them against the Generally Accepted Auditing Standards (GAAS), published by the Financial Accounting Standards Board (FASB).
Why do companies get audited?
The main reasons for the audit are to provide reasonable assurance that the financial statements are free from material misstatements and errors and to ensure that all events that can adversely affect the company have been disclosed.
What does a liquidity ratio show?
It is used to measure a company’s ability to pay its short-term debts
What is the current rate of VAT and Corporation Tax?
The current rate of Corporation Tax for a small company is 20 percent of taxable profits for all companies, although this is set to fall to 17 percent by 2020.
The standard rate of VAT is 20 percent, although there is also a reduced rate – 5 percent; and a zero rate – 0 percent. Some items are also VAT exempt.
What is the difference between operational expenditure and capital expenditure?
Capital expenditure is incurred when a business acquires assets that could be beneficial beyond the current tax year. For instance, it might buy brand new equipment or buildings. Also, it could upgrade an existing asset to boost its value beyond the current tax year.
Operational expenditure consists of those expenses that a business incurs to run smoothly every single day. They are the costs that a business incurs while in the process of turning its inventory into an end product. Hence, depreciation of fixed assets that are used in the production process is considered OpEx expenditure. OpEx is also known as an operating expenditure, revenue expenditure or an operating expense.
Explain the purpose of keeping company accounts.
The purpose of these accounts is to report the financial activity of the company and work out how much corporation tax it has to pay to HMRC. Directors are legally responsible for making sure the annual accounts are completed accurately and submitted by the statutory filing deadline.
What headings would you expect to see in a set of accounts?
Income, expenses, Fixed Assets, Current Assets.
What is Gearing?
the ratio of a company’s loan capital (debt) to the value of its ordinary shares (equity)
What is Solvency?
the possession of assets in excess of liabilities; ability to pay one’s debts.
What is a balance sheet?
a statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period.
What does a balance sheet consist of?
A typical company balance sheet consists of the three sections; assets, liabilities and owner’s equity or capital. Often described as a “snapshot of a company’s financial condition”, it is the only financial statement which applies to a single point in time
Why are balance sheets important?
The purpose of a balance sheet is to give interested parties an idea of the company’s financial position, in addition to displaying what the company owns and owes.
